Thursday, September 25, 2014

CFPB Sues Corinthian College On Predatory Student Loan Practices

In case there were any doubts, the federal government is still in the business of Truth-In-Lending.  Corinthian College is the target of an action of the Consumer Financial Protection Bureau “(CFPB”) for predatory student loan practices. This is not too surprising given the Massachusetts Attorney General action filed back in April against Corinthian.  Corinthian has a host of troubles now, including financial problems that have it seeking a buyer for the distressed educational institution.  (See, The For Profit College that's Too Big to Fail and Corinthian Victimized Students)   The CFPB's complaint alleges that Corinthian encouraged students to take out private loans, in addition to federal loans, too expensive to pay back. The CFPB points to inflated, misleading and sometimes false employment figures. Its a bit of a mystery as to whether the college was just encouraging students to take out these private loans or if the practices actually amounted to inducing students to take out these loans.

The cost of tuition for one of Corinthian Colleges degrees was at least five times higher for any degree that could be earned at a public or community college. The CFPB alleges that Corinthian raised the cost of tuition so that the federal loans would not cover the cost, and students would then take out "Genesis" loans, which Corinthian had an interest in and which require students to pay while attending classes. Many of the students defaulted and Corinthian employees would called students out of class numerous times to discuss the non-payment of the loan in order to get students to make good on their loans.

So, how might an aggrieved student with some education, but not fantastic job opportunities benefit from this action? The CFPB's complaint seeks relief from the court going as far as ordering the complete recision of all Genesis and Education Plus loans starting from as early as 2011. This is big, as the students would not have to repay these loans.  About 130,000 students took out a “Genesis” loan since July 2011. Apparently most of the students attending Corinthian Colleges which include Everest Institute and Everest College, are students that come from homes earning less than 45k per year. The College is however, still enrolling students with the same practices despite the suit although the CFPB is seeking to enjoin the colleges from performing the same tactics for new or prospective students.  In August, Corinthian sold over $500 million of these student loans to a third party for $19 million, surely reflecting collectability on several fronts.

With the federal government unable to tackle the issue of student loans on a broad basis, the CFPB at least seems to be carrying out there promise to crack down on predatory lending.  Earlier this year, it was ITT Tech that was in the spot light for these deceptive practices. (See, CFPB Takes on Predatory Student Loan Practices).   Student loan defaults on the whole, at least, are down. (See, Defaults on Student Loans Decline).  It should be interesting to keep an eye on who is next on the student loan front.  Those lenders and schools whose loans have a disparate impact on their students are next in line.  Not surprisingly, the ABA's Business Law Section's Annual Meeting included a well attended session on "All I Need to Know I Learned From the Government: A Look at the Regulatory and Enforcement Landscape for Student Lending."

- JSM (with Devon Locay, St. Thomas University J.D. expected 2016)

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